Monetary Policy and Its Validity in China中国商务环境参考.doc

Monetary Policy and Its Validity in China 学 生 姓 名： 学 号： 学 院（系）： 专业（方向）： 国际经济与贸易实验班 Abstract: After what may be described as dazzling monetary policy changes from “tight” in 2008 and “moderately loose” during 2009-2010 to the current “prudent” policy, PBOC is now focusing more on establishing a system framework for prudent macro financial management. This marks a new era for China’s monetary policy control. Reviewing current monetary policy and scrutinizing its validity will carry a significant impact for enhancing China’s monetary and financial theory and policy practice. This essay explores the issue of current monetary policy and its validity in China. It gives an overview of monetary policy in China and discusses 4 ultimate goals of monetary policy in details. The essay further demonstrates methods of PBOC which are used to implement policy and then evaluate the validity of each method one by one. With the data of reserve requirement ratios and loan and deposit rates in recent years, the essay illustrates the flaw of current monetary policy and give reasons for that under detailed analysis. Key Words: Monetary policy, objectives, open-market operations, reserve requirements, market-based interest rate 1. Overview of Monetary Policy in China A monetary policy system includes the ultimate objective, intermediary objective, and operation instruments, and so forth. It is a process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. There are two kinds of monetary polices. Narrow monetary policy means that the central bank uses different tools to manage interest rate and money supply so as to achieve some specific goals such as low employment and economic growth. Generalized monetary policy means all government, central bank and other related departments’ activities toward currency. After